Indusind Bank - Q2FY21 Results Review - Prudence increasingly visible. ADD - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

IIB's 2QFY21 earnings fine print and commentary point to the bank's increasingly prudent approach. This is indicated by (1) the continued augmentation of provision buffers, and guidance for further provisions, (2) rapidly rising share of retail deposits, (3) limited growth (for now) in relatively risky segments such as unsecured retail loans, unlike some of its peers, and (4) moderating corporate loan growth which points at a conscious re-balancing. The permanence and rewards of such an approach remain to be seen. This drives our ADD rating (revised target price of Rs 690).

Asset quality and collection trends: Adjusted for the impact of the SC order, GNPAs are 2.3% (+13/-21bps). Like its peers, IIB reported a significant improvement in collection efficiency to 94.7% in Sept-20 (95-96% in October). Segment-wise collection efficiency- VF (94.3%), microfinance (91%), other CFD loans (~90%), large corporate (~100%), medium and small corporates (~95%). The management expects the % of restructured loans to be in low single digits. While collection efficiencies have improved, we continue to build in a rise in GNPAs to 4.5% in FY21E.

Non-tax provisions remained elevated on a YoY basis at Rs 19.6bn (3.94% ann., -13% QoQ). They included COVID-19 related provisions of Rs 9.3bn, which takes the total stock of such provisions to Rs 21.6bn (1.1% of loans). PCR rose 2710/1011bps to 76.7% due to low NPA accretion- this is optical. The management indicated that it would continue to increase provisioning buffers, and we build in LLPs of 2.4% over FY21-23E.

Deposit growth was strong at 10.2/8.1%, led by TD growth of 12.4/7.6%. While CA growth too was strong at 25.4/8.9%, the bank is likely to be unfavourably impacted by the new CA guidelines. Most importantly, the bank saw strong growth in retail deposits (+24.9/11.9%) - a positive.

NIMs shrank 12bps QoQ to 4.16% (+6bps YoY), despite the dramatic fall in CoD (-176/-79bps) and the recent capital raise. This can be attributed to excess liquidity held (10bps impact). The bank is looking to reduce deposit rates further in 3QFY21. We build in NIMs of 4.6% over FY21-23E.

Shares of INDUSIND BANK LTD. was last trading in BSE at Rs.585.6 as compared to the previous close of Rs. 588.7. The total number of shares traded during the day was 745533 in over 18388 trades.

The stock hit an intraday high of Rs. 601.95 and intraday low of 576.55. The net turnover during the day was Rs. 439499330.

Source : Equity Bulls

Keywords